89.9k views
2 votes
High-Low Method Diamond Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced Total Costs
12,000 $424,000
15,000 496,000
21,000 640,000
(a). Determine the variable cost per unit and the total fixed cost. Variable cost (Round to two decimal places.) $ per unit ____________
Total fixed cost $_____________
(b). Based on part (a), estimate the total cost for 17,000 units of production. Total cost for 17,000 units $__________

1 Answer

6 votes

Answer:

(a) $24 per unit; $136,000

(b) $544,000

Step-by-step explanation:

(a) Computation of variable cost per unit and the total fixed cost

Let Y1 = $424,000 and Y2 = $640,000,

X1 = 12,000 and X2 = 21,000

variable cost per unit (b) = (Y2 - Y1) ÷ (X2 - X1 )

= ($640,000 - $424,000) ÷ (21,000 - 12,000)

= $24 per unit

Total fixed cost:

Y2 - bX2 = Y1 - bX1

640000 - 24 × 21000 = 424000 - 24 × 12000

$136,000 = $136,000

(b) Computation of total cost for 17000 units of production

Total cost = [variable cost per unit × units produced ] + total fixed cost

= [24 × 17000] + 136000

= $544,000.

User Nrc
by
8.0k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories